Weakness Unmatched in 35 Years

This is from the Liscio Report. As John Maudlin explains at The Big Picture, “One of the best gauges of an economy is tax collections. No one pays taxes unless they have to, so collections are a real-world, real-time analysis of the US economy. And the best source I know of for tracking taxes is The Liscio Report, by Philippa Dunne & Doug Henwood.” A grim report, and great charts. Hat-tip to Doug at lbo-talk.

In January, 21% of the states in our survey met or exceeded their forecasted sales tax collections, up from 9% in December. Our index is based on states meeting their forecasts, not reporting strong or even positive over-the-year collections, so we need to point out that the entire improvement came from a large state doing slightly better than the stunning decline they had forecast. This decline was partially calendar related, but January 2008 was 7% below forecast, so they had a very low bar. In the words of our contact in that state: “Bad economy, good forecast.” Had the revenue estimators in that state made a less dramatic forecast our survey would have slid to 6%, which we think is more in line with historical weakness reported for sales tax collections during the holiday season.

States reporting over-the-year growth fell to 3% from 15% in December. The average decline, weighted by state population fell from December’s -6% to -10%. (More on this in a bit.) Forecasts were negative in all but two of the states that met their projected collections. The exceptions include a state that collects sales taxes on groceries and attributes their relative strength to the spike in food prices, and another that put through a rate increase, which accounts for all of the growth. The energy-extraction states, which have held up the longest, are now weakening as well. To give you an idea of how powerful the surge in energy prices has been, our contact in one southern state told us that their Appalachian mine country is currently outperforming regions where manufacturing and research predominate.